News that Moody's is about to take a second look at about 300 Billion in Bonds backed by Commercial Real Estate doesn't help J.P. Morgan, Citigroup, Bank Of America, or Wells Fargo.
What would a ratings downgrade mean? Answer: Commercial Real Estate has on the surface held up better compared to residential real estate. If these type of loans need to be more closely scrutinized, then more then likely, financial institutions need to mark down these securities on their books, effecting their Tier 1 Capital Ratios and Book Values.
These Banks would then need to raise significant capital (Dilution), to make up for these losses.
J.P. Morgan and Bank Of America are most affected by this.
BTW- State Street Bank did the right thing today. Coming clean with regards to earnings while cutting the dividend to .04 cents annually. Of course, the stock rallied nicely for the time being.
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